Company Voluntary Arrangements (CVAs) are being abused, according to the British Property Federation (BPF), as House of Fraser has become the latest retailer to restructure its business using a plan that involves a CVA.
House of Fraser has announced the closure of half its high street stores and has put forward a CVA proposal for a 25% rent reduction on ten of the stores that it plans to keep open. The chain follows Prezzo, New Look, Carpetright and Mothercare, among those who have sought to implement CVAs this year.
A CVA is a limited form of insolvency, designed to allow companies to reach a voluntary agreement with creditors that will help repay part, or all, of its corporate debts over an agreed period.
A CVA may well help a company keep its head above financial waters, but the British Property Federation (BPF), which represents landlords, claimed that landlords were unfairly shouldering a disproportionate amount of the costs, compared to financial institutions and shareholders.
Melanie Leech, Chief Executive of the BFP, said that it did want to help businesses that were genuinely struggling, but has accused some of misusing the CVA process to renegotiate rents with landlords.
The British Retail Consortium has defended its members, saying that retailers would explore all other options before entering into a CVA – which, if successful, would preserve jobs and prevent retail property becoming vacant.
Jobs may well be preserved, but the large pension funds are among the property investors affected by the surge in CVAs, so it is likely that pensions could be affected in the future.
Restaurant chain, Prezzo, used a CVA in March to wriggle out of a 25-year lease on a retail property unit at Woodley, near Reading. After just two years of the contract, the landlord received just 12p in the pound for eight weeks – Prezzo then legitimately walked away from its lease commitment. The landlord’s house building company that had held part of the shopping precinct in its staff pension fund lost the rental income and was liable to pay the business rates on the empty property – powerless to do anything about the situation.
Fashion retailer, New Look, closed 60 shops in March and at the same time negotiated a cut in rent of up to 55% on nearly 400 other properties.